Stock Market Crash With Both Inflationary and Deflationary Potential

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The stock market crash has many people wondering how and what will happen to precious metals and the underlined mining companies. As it is, a depression in the precious metals space has been experienced over the past four years, and we are anticipating a turnaround that has potentially already happened. This is still yet to be confirmed and only when we look back in the future will be able to verify this.

As we approach the next stock market downturn, we need to know what to do with our money. In the last bear market — from October 9, 2007 to March 9, 2009 — there were few places for an investor to hide. U.S. large-cap stocks declined 53%. International stocks declined 61%. Real estate investment trusts declined 17%. Commodities declined 48%.

To be fair, with precious metals, gold and silver were in a bull market right up to the 2008 stock market crash, and as we pointed out, precious metals have been in a four-year downturn. So comparing the last bear market and what happened with precious metals to now is apples and oranges. Keep in mind that while in 2008, we did see gold correct down roughly 30%, it only stayed down for a short time, and in 18 months it was back to new highs. Stocks in general took much longer than that to recover during the 2008 crisis.

Gold prices plunged over the past few years and stock prices soared. The price of gold is down around 40% from its September 2011 peak. Meanwhile, the S&P 500 is up more than 70% from its October 2011 bottom. There is a time and season for everything, and we believe stocks have had their moment and are in for a correction in the very near future.

There is an elephant in the room that could be bearish for gold, and that is deflation. Deflation would be the ultimate kicker for gold at this point. I don’t see gold going too much below $1,000, but we could very well see it happen if we see a stock market crash and a rush to “safety” (the U.S. dollar). Silver will likely experience the brunt of this pain due to the industrial-metal aspect to it. But as was previously said, precious metals have already plunged, so the likelihood of them going down much more is minimal.

The flipside of the coin is that we could see people bypass dollars this time around and go straight into precious metals.

As of right now, stock prices are falling. The S&P 500 has lost 6% of its value in the past month. Meanwhile, gold prices have remained flat. There are some people out there that believe that if stocks continue their decline, investors will move into hard assets (like gold) as part of an “insurance portfolio.” I do believe that this is also a very likely situation, and to be honest with you, in the short term, I believe there will be a combination of the two, with people flooding into dollars and precious metals.

That being said, if we do see stocks come crashing down some, there will likely be less risk associated with owning precious metals (specifically gold) and a lot of upside over time when compared to owning general U.S. stocks.

Where we could see a major move-in is gold stocks, where a breakout could happen soon. But if you’re going to invest in the sector, make sure you buy the right stocks. The biggest benefit of hard times is that companies get hurt for inefficiencies that they laughed off in better times. A recession means general fat trimming for companies, from which they should emerge stronger, and that’s good news for investors.

If you have followed us for some time, you know that we cover mining companies that have great potential and are surrounded by the best people and projects in the industry. The uptrend in this sector is going to be a once-in-a-lifetime opportunity, and you aren’t going to want to miss out on this party when things get going.